Stock market's hidden clues may point way for prices

The fiscal cliff is over and the debt ceiling has yet to heat up. The markets were higher as the Russell hit a new high again and the SPX is right there within 2 points of its high. This was a week the President sought to replace Geithner and Hillary Clinton. There will be longstanding implications to the new nominations.

All I can tell you about Jack Lew is he’s the President’s point man when it comes to the budget. He’s an expert on the numbers. I don’t know if this is good or bad because Republicans are probably not going to like him given the contentiousness of the negotiations that ended and are to come. The President also nominated the former GOP Senator Chuck Hagel which isn’t exactly sitting well with Republicans due to statements he made about Israel and Iran. Without any further information the GOP is likely to pick their fight which means Hagel can get a pass while they join the battle against Lew. The contentiousness we discussed in recent weeks can make Lew a casualty given the next fight to come.

While we are on the subject of contentiousness, we put to bed the NHL lockout, finally. Is it amazing the fiscal cliff and lockout ended both in the exact same way? These negotiations were so contentious and time consuming it boggles the mind. This bunch had to make a deal or the players would have had to disclaim being a union, a process whereby negotiations would be impossible because the players union would cease to exist, thus throwing the decision into the courts and destroying the last hope for a hockey season. As it is, they’ll play a minimum season which begins next Saturday and we can all observe how fans welcome them back. The next negotiation is the debt ceiling debacle of which Rand Paul already fired the first shot by proposing a law that would make a default unlawful.

Basically it would be a law that would balance the budget by requiring the government to cut spending by 30%. Give Mr. Paul credit for recognizing that allowing the government to default would not be an option. Anyone could figure that out, we don’t need legislators for that. As you’ll see such a law would throw hundreds of thousands of people out of work overnight and toss the US into a deep recession, probably just as bad as what we experienced in 2008. I look at this stuff and I wonder if anyone besides Helicopter Ben actually studied the economic history of the 2nd half of the 1930s. In case you don’t know, Great Depression II in 1937 materialized as a result of Roosevelt giving in to the budget hawks in the 36 election and took his foot off the stimulus pedal prematurely and the labor unions getting so powerful their strikes disrupted factories around the country. However, we’ve already incurred obligations from folks like China who still own Treasuries and those come due whether you or I work. This is the big flaw with the sequester in defense cuts and why it would be so disastrous if that were to ever happen. So the reality of the situation is the ideas of the extreme right would actually throw the country into very condition they seek to prevent.

Why is this so important to our work? Because we haven’t seen the end of the bear roller coaster. The market looks fine right now. In fact it looks wonderful, too wonderful and if you are looking for a reason for them to drop which I am all you need to do is wait on the next Battle Royale which can start to manifest at almost any time. When is the government supposed to run out of money? Depending on who you listen to it might even be February 1st so we might even already be in a season where the rumor, innuendo mill starts affecting bears. Certainly the VIX is in a very dangerous place and just be sure you are not the last man in.

Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.